IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/50184.html
   My bibliography  Save this paper

Regulatory Stringency in Issuing Certified Emission Reductions and Price Effects in Secondary Markets

Author

Listed:
  • Yu, Fei
  • Grady, Patrick
  • Knipp, Robert

Abstract

The Kyoto Clean Development Mechanism (CDM) is the first “global” and largest carbon offset instrument, supplementing national or regional cap and trade systems such as the European Union’s Emission Trading Scheme (EU ETS). This paper draws on weekly IDEACarbon survey data from 2008 to 2010 to empirically examine how investor’s perception of the CDM regulatory and administrative framework affects the price of CERs in secondary markets (denoted as sCER) and the price spread with EUAs. Results from cointegration analysis and GARCH modeling indicate that the perception of investors about the relative stringency and efficiency of this framework is a significant determinant of the sCER price and the EUA-sCER price spread. An increase in perceived stringency causes significant increases in sCER prices and a substantial narrowing of the EUA/sCER price spread (and vise versa). The analysis also shows that the EU ETS market was instable over the period examined, with a structural shift occurring at the end of 2008 likely due to the 2008 financial crisis.

Suggested Citation

  • Yu, Fei & Grady, Patrick & Knipp, Robert, 2012. "Regulatory Stringency in Issuing Certified Emission Reductions and Price Effects in Secondary Markets," MPRA Paper 50184, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:50184
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/50184/1/MPRA_paper_50184.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Chevallier, Julien & Ielpo, Florian & Mercier, Ludovic, 2009. "Risk aversion and institutional information disclosure on the European carbon market: A case-study of the 2006 compliance event," Energy Policy, Elsevier, vol. 37(1), pages 15-28, January.
    2. Emilie Alberola & Julien Chevallier, 2009. "European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 51-80.
    3. repec:dau:papers:123456789/4222 is not listed on IDEAS
    4. Karoline Flåm, 2009. "Restricting the import of ‘emission credits’ in the EU: a power struggle between states and institutions," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 9(1), pages 23-38, February.
    5. Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, vol. 36(2), pages 787-797, February.
    6. World Bank, 2010. "World Development Report 2010," World Bank Publications - Books, The World Bank Group, number 4387.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mori-Clement, Yadira & Bednar-Friedl, Birgit, 2019. "Do Clean Development Mechanism Projects Generate Local Employment? Testing for Sectoral Effects across Brazilian Municipalities," Ecological Economics, Elsevier, vol. 157(C), pages 47-60.
    2. Yadira Mori Clement & Birgit Bednar-Friedl, 2017. "Do Clean Development Mechanism projects generate local employment? Testing for sectoral effects across Brazilian municipalities," Graz Economics Papers 2017-05, University of Graz, Department of Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fan, Ying & Jia, Jun-Jun & Wang, Xin & Xu, Jin-Hua, 2017. "What policy adjustments in the EU ETS truly affected the carbon prices?," Energy Policy, Elsevier, vol. 103(C), pages 145-164.
    2. Julien Chevallier & Benoît Sévi, 2011. "On the realized volatility of the ECX CO 2 emissions 2008 futures contract: distribution, dynamics and forecasting," Annals of Finance, Springer, vol. 7(1), pages 1-29, February.
    3. Julien Chevallier & Yannick Le Pen & Benoît Sévi, 2009. "Options Introduction and Volatility in the EU ETS," Working Papers halshs-00405709, HAL.
    4. Mansanet-Bataller, Maria & Chevallier, Julien & Hervé-Mignucci, Morgan & Alberola, Emilie, 2011. "EUA and sCER phase II price drivers: Unveiling the reasons for the existence of the EUA-sCER spread," Energy Policy, Elsevier, vol. 39(3), pages 1056-1069, March.
    5. Julien Chevallier, 2010. "Modelling the convenience yield in carbon prices using daily and realized measures," Working Papers halshs-00463921, HAL.
    6. John Hua Fan & Eduardo Roca & Alexandr Akimov, 2014. "Estimation and performance evaluation of optimal hedge ratios in the carbon market of the European Union Emissions Trading Scheme," Australian Journal of Management, Australian School of Business, vol. 39(1), pages 73-91, February.
    7. Carlos Pinho & Mara Madaleno, 2011. "Links between spot and futures allowances: ECX and EEX markets comparison," International Journal of Global Energy Issues, Inderscience Enterprises Ltd, vol. 35(2/3/4), pages 101-131.
    8. Julien Chevallier & Benoît Sévi, 2009. "On the realized volatility of the ECX CO2 emissions 2008 futures contract: distribution, dynamics and forecasting," Working Papers hal-04140871, HAL.
    9. Chevallier, Julien & Le Pen, Yannick & Sévi, Benoît, 2011. "Options introduction and volatility in the EU ETS," Resource and Energy Economics, Elsevier, vol. 33(4), pages 855-880.
    10. Julien Chevallier & Stéphane Goutte, 2017. "Estimation of Lévy-driven Ornstein–Uhlenbeck processes: application to modeling of $$\hbox {CO}_2$$ CO 2 and fuel-switching," Annals of Operations Research, Springer, vol. 255(1), pages 169-197, August.
    11. Julien Chevallier & Yannick Le Pen & Benoît Sévi, 2009. "Options introduction and volatility in the EU ETS," Working Papers hal-04140857, HAL.
    12. repec:dau:papers:123456789/4598 is not listed on IDEAS
    13. Julien Chevallier, 2010. "Carbon Prices during the EU ETS Phase II: Dynamics and Volume Analysis," Working Papers halshs-00459140, HAL.
    14. Feng, Zhen-Hua & Wei, Yi-Ming & Wang, Kai, 2012. "Estimating risk for the carbon market via extreme value theory: An empirical analysis of the EU ETS," Applied Energy, Elsevier, vol. 99(C), pages 97-108.
    15. Chevallier, Julien, 2011. "Nonparametric modeling of carbon prices," Energy Economics, Elsevier, vol. 33(6), pages 1267-1282.
    16. repec:dau:papers:123456789/5109 is not listed on IDEAS
    17. Marc Gronwald & Janina Ketterer & Stefan Trück, 2011. "The Dependence Structure between Carbon Emission Allowances and Financial Markets - A Copula Analysis," CESifo Working Paper Series 3418, CESifo.
    18. Julien Chevallier & Stéphane Goutte, 2014. "The goodness-of-fit of the fuel-switching price using the mean-reverting Lévy jump process," Working Papers 2014-285, Department of Research, Ipag Business School.
    19. Marcel Gorenflo, 2013. "Futures price dynamics of CO 2 emission allowances," Empirical Economics, Springer, vol. 45(3), pages 1025-1047, December.
    20. Chevallier, Julien, 2011. "Detecting instability in the volatility of carbon prices," Energy Economics, Elsevier, vol. 33(1), pages 99-110, January.
    21. repec:dau:papers:123456789/5385 is not listed on IDEAS
    22. Jia, Jun-Jun & Xu, Jin-Hua & Fan, Ying, 2016. "The impact of verified emissions announcements on the European Union emissions trading scheme: A bilaterally modified dummy variable modelling analysis," Applied Energy, Elsevier, vol. 173(C), pages 567-577.
    23. Julien Chevallier, 2010. "The European carbon market (2005-2007): banking, pricing and risk-hedging strategies," Working Papers halshs-00458787, HAL.

    More about this item

    Keywords

    emission permits; EUA-sCER Spread; spot and future price dynamics; carbon derivatives;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:50184. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.